He told the FT in an interview he has concerns about the high volume of lending in the property investor market, fearful of the risk investors might all seek to sell at the same time if property prices fell.
“So we do have to be careful around that [buy-to-let] sector. And I think collectively there are a number of things happening and we are watching it, we are watching it closely and we will take action”.
Carney has often suggested interest rates will remain low for a long time, but has not been as explicit about the consequences for the bank’s attitude towards the growth of credit.
The US Federal Reserve is expected to raise rates today, but financial markets have only priced in one rise in the UK towards the end of 2016 to 0.75% and a rise to 1% by the end of 2017.
Carney said the BoE is focused on curbing ‘excessive growth’ in a low, for long interest rate environment.
Carney also defended his much criticised policy of ‘forward guidance’ which has led to accusations of ‘flip-flopping’ about when the next UK rate rise will come.
The Bank was forced to backtrack on a predicted 2015 rise after oil prices plunged and moderation of wage inflation reduced the need for an interest rate cut.
With little sign of inflation, Mr Carney said the priorities for the central bank were to increase the resilience of the banking system in the event of a downturn and reassess the safety of the buy-to-let lending market.
In early December, the Financial Stability Committee presented its case on the potentially destabilising effects of the buy-to-let market on the overall economy.
In a bid to protect landlords from rate rises or income falls, Carney is keen to add further controls to buy-to-let interest coverage ratios, commonly set at 125%.
In Mortgage Solutions, brokers warned against the potential damage these curbs could wreak on the property investment market.
At the end of November, Barclays raised its rental cover ratio from 125% to 135% and Coventry Building Society followed with its own rental calculation changes based on 125% of the mortgage interest payment, with reference rates of 5% or 5.5% depending on LTV.
Under what many see as a sustained attack on the landlord market, in the Autumn Statement, the chancellor announced a 3% Stamp Duty surcharge on all investment properties or second homes phased in from April 2016.
From April 2017, the government will also begin to phase out the higher rate tax relief for buy-to-let landlords gradually over a period of four years.
Landlords can currently use the interest they pay on a mortgage each year to offset their tax bill and claim relief at the personal tax rate.
In summary, landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax. In other words, tax will be applied to the rent received – rather than what is left of the rent after the mortgage interest has been paid.